Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Economic Stimulus Alive and Kicking in EU

  by    0   0

Janet Yellen and company pretty much followed the script during last week’s Federal Open Market Committee meeting, raising interest rates another .25 percent and signaling three rate hikes in 2018.

We tend to focus primarily on Federal Reserve actions, but it’s important to remember the Fed isn’t the only central bank game in town. While it nudges interest rates slowly upward, the European Central Bank is standing pat on economic stimulus. And there’s no indication that is going to change in the near future.

With its latest rate hike, the Federal Reserve has pushed the Federal Fund Rate to 1.5%. That’s the highest we’ve seen since 2008. Even at that, we’re still well below the 5.25% peak hit during the last expansion.

Meanwhile, ECB chair Mario Draghi announced back in October that quantitative easing would live on in the EU.  The European Central Bank plans to extend its bond-buying program deep into 2018, continuing the flow of easy money into the European Union. Last week, Draghi stuck to that course, saying the inflation outlook remains “muted.” The ECB plans to hold interest rates down for “an extended period.”

The Bank of England raised its key interest rate last month, but officials say they have no plans to follow up in the near future.

So, why the reluctance to move away from stimulus if the economy has recovered? Ryan McMaken at the Mises Institute provides some analysis.

Draghi “repeatedly stressed that what the eurozone is experiencing is no longer a mere ‘recovery’ but instead an ‘expansion…'” One is left wondering, however, why the ECB refuses to let up on the stimulus if the economy is doing so well.

Over the past decade, central bankers have gotten into a fairly predictable habit of declaring the economy to be “strong” or “robust” while simultaneously refusing to scale back the central bank’s stimulus. As numerous commentators have pointed of, though, Europe’s monetary policy remains in the service of debt-laden governments which rely on rock-bottom rates to keep debt payments low. Moreover, the threat of a banking crisis in Italy isn’t exactly exactly motivating central bankers to raise rates.

From their perspective, it’s better to just keep rates low indefinitely, and hope for the best.

This makes one wonder how the Fed can continue to push rates higher. The US government continues to spend money like a drunken sailor and if the GOP manages to push its tax reform plan through, we can expect even more debt over the next decade. The government is going to need to keep interest rates low in order to manage its debt service.

It won’t take much to convince the Fed to reverse course. We’d expect normalizing to stall the minute there is the slightest economic wobble.

WhyBuyGoldNowBanner.070815.590

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Fake Accounting Creates Fake News

On Tuesday, US stock markets rallied. The Dow was up over 500 points. That led a lot of people to conclude that the recent declines were just a correction. But as Peter Schiff pointed out in his most recent podcast, bear markets have rallies. Just because the market goes up a few days doesn’t mean […]

READ MORE →

US Debt ‘Out the Wazoo’ as China and Japan Sell Off Treasuries

The US national debt increased by $1.27 trillion in fiscal 2018. If you expected the pace of borrowing to slow in fiscal 2019, you’ll be disappointed. In just the first 11 business days of the new fiscal year, the US government added another $138 billion of debt to the total. That brings the total national […]

READ MORE →

Report: Increasing Global Risk Highlight’s Gold’s Relevance

gold barsOn Oct. 10, the IMF released its Global Financial Stability report, highlighting increased levels of risk revealed by a number of global metrics. Just after the report was released, stocks in the US, Europe and Asia lost 4%, 3% and 4% respectively over three days. As a recent investment update released by the World Gold Council […]

READ MORE →

Hungary Increases Gold Reserves 10-Fold

Yesterday, the Hungarian central bank announced it recently boosted its gold reserves 10-fold. According to its website, the National Bank of Hungary (MNB) now owns 31.5 tons of gold, up from 3.1 tons. It was the first significant purchase of gold by Hungary since 1986. A statement by the bank said the increase in gold stocks was […]

READ MORE →

Peter Schiff: We’ve Had a Sale on Gold for a Long Time; It’s About to End

The stock market has been rocked over the last week but gold has rallied.  In his most recent podcast, Peter called gold “the real standout in the market.” The price of gold finally woke up — or traders work up and notice how cheap gold is.” Related

READ MORE →

Comments are closed.

Call Now